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Exit taxation: What threatens if you leave Germany?

By Global Wealth Protection | Reading time: approx. 9 minutes

The dream of a new start – and what the tax office says about it

Dubai, Zurich, Vaduz. For many wealthy individuals, the idea of changing residence abroad is no longer an abstract consideration Lower taxes, more quality of life, international mobility – the reasons are varied and understandable.

What is often underestimated, however: the state won't just let you go. Anyone who leaves Germany and holds assets in the form of company investments or securities must expect a tax bill – even before the first plane takes off into the new life.

The so-called exit taxation is one of the most complex and consequential instruments of German tax law. Anyone who ignores them pays a high price. Anyone who understands them and plans them early can reduce them significantly – completely legally.

What is exit taxation?

Exit taxation is in Section 6 of the Foreign Tax Act (AStG) regulated and was most recently significantly tightened by the ATAD Implementation Act 2022. Their core: Anyone who leaves Germany and holds shares in corporations must rely on the so-called hidden reserves these shares pay income tax – even though there was no actual sale.

Hidden reserves are the difference between the original purchase price and the current market value of a holding. To put it simply: If you have purchased a GmbH share for €500,000, which is now worth 3 million euros, the tax authorities have an interest in this –2.5 million, even if you never sold the shares.

Affected are:

Natural persons living in Germany unlimited tax liability goods (at least 7 of the last 12 years)

With shares in corporations minimum 1% participation

Regardless of whether it is a GmbH, AG or foreign corporation

When will exit taxation be triggered?

The trigger is the Abandonment of unlimited tax liability in Germany – usually by giving up the German residence or habitual residence.

Here the law distinguishes between different scenarios:

Permanent move to a third country

If you move to a country outside the EU/EEA –e.g. Switzerland, the UAE or Singapore –, the tax is due immediately and must generally be paid within the usual deadlines.

Moving to an EU or EEA State

Those who move to an EU or EEA state benefit from a interest-free deferral policy: The tax is deferred as long as the shares are not sold. It only becomes due upon an actual sale or further move to a third country.

Temporary departure

Anyone who can prove that they are only moving abroad temporarily – with the intention of moving within 7 years to return – can apply for a deferral under certain conditions. This deadline was extended from 5 to 7 years in 2022.

Important: Switzerland and Liechtenstein are not EU/EEA states in the tax sense. Moving there is considered moving to a third country – with immediate tax liability.

How high is the tax burden?

Exit taxation is based on personal income tax rate the taxpayer – in practice often between 42% and 45%, plus solidarity surcharge.

Calculation example:

Position Value

Acquisition costs GmbH share €500,000

Current market value €3,000,000

Hidden reserves €2,500,000

Taxable amount (60% by partial income procedure) €1,500,000

Income tax (ca. 45%) ~€675,000

In this example, round are created 675,000 euros tax liability – without a single euro flowing out of the company. Liquidity must be raised elsewhere.

Which types of assets are affected?

Corporate investments

The classic field of application: GmbH shares, stock corporations, investments in foreign corporations from 1%. This is where exit taxation hits hardest.

Securities portfolios

Private securities portfolios are generally included not under Section 6 AStG –, the capital gains tax applies instead, which only applies to the actual sale. An important difference.

Cryptocurrencies

The tax treatment of cryptocurrencies in the context of exit taxation has not yet been conclusively clarified. However, financial management tends to increasingly treat cryptoassets as capital assets. There is considerable legal uncertainty here – individual advice is essential.

Which is not affected

Real estate, classic bank balances and life insurance are not subject to exit taxation. However, other tax consequences can arise if you move away.

Legal optimization strategies

The good news: Who plan early, has considerable scope for design. The bad thing: If you only act shortly before moving away, you hardly have any options.

1. Early planning – minimum 3–5 years prior

Many optimization strategies only work if they are implemented years before the planned departure. Holding periods, conversions and structural changes take time.

2. Conversion into a partnership

GmbH shares that are converted into a partnership no longer fall under Section 6 AStG. This step is complex, but can completely avoid exit taxation.

3. Holding structures

An intermediary holding company –in an EU country, for example– can optimize the tax burden while offering flexibility for future restructuring.

4. Foundation and Trust

The transfer of assets to a family foundation or trust before moving away can significantly reduce the assessment basis for exit taxation. However, the design must be flawless under tax law – expert advice is mandatory here.

5. Use of deferral arrangements

Anyone moving to an EU/EEA country should actively use the deferral arrangement and strategically plan the timing of a later sale.

Switzerland and Liechtenstein: A comparison

Moving to Switzerland

Switzerland is an attractive destination for wealthy Germans – tax, cultural and linguistic. But as a non-EU country, the following applies to Germany: no deferral, immediate tax liability.

Switzerland itself does not have comparable exit taxation. Flat-rate taxation (so-called expense taxation) in cantons such as Zug, Schwyz or Obwalden can significantly reduce the ongoing tax burden –but the one-off burden of moving out of Germany remains.

Conclusion Switzerland: Attractive for ongoing tax optimization, but moving out itself is expensive.

Move to Liechtenstein

Liechtenstein is a member of the EEA – but not the EU. The tax classification in the context of German exit taxation is complex: Liechtenstein is treated like an EEA state in certain areas and not in others.

In addition: Liechtenstein is recognized worldwide as a location for foundations and trusts. The combination of relocation of residence and simultaneous asset structuring via Liechtenstein instruments makes Vaduz particularly interesting for internationally mobile wealthy people.

Conclusion Liechtenstein: Complex, but for structured assets with significant optimization potential – professional support is not a luxury here, but a necessity.

Conclusion: Whoever plans determines – who waits pays

Exit taxation is not a punitive mechanism. It is a tax reality that affects everyone who moves away from Germany without preparation and holds company investments in the process.

The crucial variable is Time. Anyone who plans to move away early has design options. Anyone who acts at short notice has none.

Global Wealth Protection supports wealthy private individuals in the structured preparation of a change of residence – from a tax, legal and strategic perspective. From initial analysis to full implementation.

Are you planning or thinking about moving away? Talk to us before you take your first steps. Early consultation is the best investment you can make in this process.

This article is for general information only and does not constitute tax or legal advice and for your individual situation we recommend advice from a qualified tax advisor or lawyer.